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Despite the fact that many taxpayers file their tax returns on or about April 15 every year, it’s not mandatory to wait until the last minute; indeed, filing an early tax return can make sense for a variety of reasons. The Internal Revenue Service (IRS) normally begins accepting tax returns in January. Last year the date was Jan. 23. This year’s date has not yet been announced. Even if you don’t file early, there are reasons to begin preparation even before the end of the current year. (For more, see Tax Tips for the Individual Investor.)

Filing an Early Tax Return Gets It Done

Avoid procrastination, give yourself peace of mind and check this important item off your New Year’s to-do list. Once the IRS says it will begin accepting returns, why not turn yours in and get this unpleasant task over with?

A Faster Refund

Last year 73% of taxpayers received a refund. If you have money coming to you, there’s no reason to let the government keep it longer than necessary. Filing sooner means a faster refund, because early on the IRS won’t be as busy as it will be in April.

A Larger Refund

Data from the IRS indicate that those who file no later than mid-February get larger refunds. This may be, in part, because the sooner you start the less rushed you are and the more likely you will be to take advantage of all available deductions instead of taking the standard deduction.

No Crowds

If you are someone who mails in your tax return, filing early avoids congestion and a crowded post office. Better to file early – especially by mail – and avoid the hassle.

Avoid Penalties

Filing early gives you time to fully understand changes to tax law or deal with changes in your life that alter your filing status. Mistakes from rushing at the last minute can trigger audits that can lead to penalties and interest.

Money When You Need It

Some people count on their income tax refund to pay major bills. Filing early puts the money in your hands sooner and may help you avoid taking out an expensive short-term loan to cover those expenses. Especially if you're still paying off your holiday bills.

Better Access to Your Tax Preparer

Your certified public accountant (CPA) or other tax preparer will not be as busy in January or February as in April. Early access means your CPA will have more time to more carefully consider your situation and help you with your return.

Tax Considerations

A head start lets you estimate capital gains distributions, harvest losses and maximize contributions to a company 401(k) and/or any IRA plans you have. You can make end-of-year deposits to health savings accounts and contributions to 529 savings plans as well as last-minute charitable contributions. You can also take advantage of the opportunity to shift deductible items – such as property taxes, business expenses or even mortgage payments – to whichever year makes the most sense tax-wise.

Time to Save Up to Pay

If you owe the IRS, filing early gives you time to save up the money. Remember, you don’t have to pay until the filing deadline. Waiting only to find out that you owe more than you expected could put a real crimp in your budget.

Access to Information You Need

Buying a home or going back to college requires information from recent tax returns. Preparing your taxes early will provide you with the most current and up-to-date information available.

Prevent Identity Theft

The sooner you file, the less time there is for an identity thief to file for you – and take your refund. This could lead to all sorts of mayhem, especially if the thief claims false deductions, fails to report income or otherwise taints a return in your name. Fixing a mess like this can take months.

Caveats

An inaccurate return will likely become an amended return. Amended returns invite audits. Here are some things to watch out for as you pursue accuracy.

  • Review All Official Documents – Check all incoming statements, including W2s, 1099s, interest statements and anything used to justify a deduction. Companies, banks and financial institutions make mistakes. Catch them before you file.
  • Watch for Late Forms Early filers can neglect a 1099 or K-1 that arrives late. Make sure you have all the documentation you need before you click on “send” or drop your return in the mailbox.
  • Check for Updates – Legislation passed before April 15 may not be reflected on paper tax forms or tax software that has not been updated. Watch the news. Be on the lookout for changes enacted after you file but before April 15. Instructions on what to do if this happens can be found here.
  • Be Honest If you do have to amend your return, don’t correct only the things that are to your advantage. Correct anything that is wrong. (For more, see Top 10 Mistakes on Tax Returns.)

The Bottom Line

Most experts agree that it’s best to at least start your return as early as possible. The decision to file early may depend on the complexity of your return, if you are receiving a refund and whether the federal government is embroiled in changes to tax law. Follow the advice of your financial or tax advisor to make sure your return is accurate and complete.

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